Latin America’s Roiled Remittance Remedy
The 2019 Inter-American Dialogue annual survey of regional remittance trends showed slower 8% growth to almost $100 billion, with “political problems” in Venezuela and Central America driving the increase. US migration restrictions will likely damp the 2% of GDP flow, with 40 million households getting overseas money. The tapering will cramp future economic performance as such a large balance of payments component and family and personal income support, the report warns. Mexico’s clip in particular fell from 11% to 7%, and El Salvador, Haiti and Colombia also slid. In the “most unstable” Northern Triangle countries of Guatemala, Honduras and Nicaragua the cash is the biggest share of output, and for Latin America and the Caribbean yearly growth is projected at 5% through mid-decade. Mexico was the leader receiving $35 billion, as more workers sent higher amounts, according to the analysis. They were larger from Florida, New York and Georgia than in California, reflecting a deportation “Trump fear factor.” While volumes and individual transactions rose, principal was flat as savings were drawn down in recent years. In Central America “victimization” is a key catalyst, and leavers typically have transnational connections and a negative domestic economic outlook. The odds jump with households earning less than $400/monthly. In Nicaragua one-tenth of families had a member flee, mainly to Costa Rica and Spain along with the US. Remittances are 15% of GDP, and 10% of recipients reported a one-third annual jump in the sum to $4000. Venezuela’s population has historically not been a major source since the Maduro regime’s humanitarian and social crisis, and channels are limited due to payment system mistrust and preference for “in-kind materials,” IAD comments. It estimates 3 million people already rely on the inflows, second in the current account after oil, in the increasingly dollarized economy. Fragile states like Haiti, where the portion of national income lead at 35%, will soon be joined by Bolivia, Guyana and Paraguay as examples.
Haiti’s earthquake a decade ago has been overshadowed by the continental Venezuela and coronavirus emergencies, with the President unable to gain parliamentary approval for proposed prime ministers as he advocates constitutional revisions to break the logjam. His government has come under violent protests for unaddressed poverty, with half the county living on under $2.50/day, and lacking food and sanitation. A watchdog group calculates that $2 billion in concessional oil aid was squandered, and growth is flat with currency depreciation and inflation in double digits. Haitians have exited to neighbors and throughout the hemisphere since the natural disaster but Venezuela’s collapse has overshadowed the movement. Citizens from debt-defaulters Argentina and Ecuador could soon expand the exodus. The IMF has declared Argentina’s $100 billion in dollar obligations “unsustainable” but the government has insisted on continued social spending that would postpone fiscal balance until mid-decade. The new Finance Minister has promised a quick offer that could entail a 50% haircut according to investment house consensus, but creditors may push back not only on servicing capacity but the Fund’s traditional senior standing guaranteeing full repayment. Outside observers believe the Fernandez Administration’s program will be more credible with far-reaching administrative and supply-side reforms, especially with offshore oil deposits relatively un-bankable at the current price and tender enthusiasm.